Beasley Broadcast Group, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; comparisons are with Q1 2017 unless otherwise noted. Beasley operated 63 radio stations across 14 U.S. markets. Results are unaudited, and management cautions that radio revenue is seasonal and Q1 is typically the weakest quarter.
Financial performance
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Net revenue | $55.2 million | $53.7 million |
| Operating income | $0.4 million | $11.5 million |
| Net income (loss) | $(3.2) million | $7.5 million |
| Basic and diluted EPS | $(0.11) | $0.27 |
| Cash provided by operating activities | $4.8 million | $6.1 million |
- Revenue increased 2.6%. Commercial advertising was $47.7 million, digital advertising $3.2 million, and other revenue $4.2 million.
- Operating expenses were $54.8 million, including $45.5 million of station operating expenses and $3.3 million of corporate G&A. Operating margin was approximately 0.7%, versus 21.5% in Q1 2017; the comparison is substantially affected by a large nonrecurring fair-value item in the prior-year period.
- Interest expense declined to $3.6 million from $4.8 million. The company recorded a $2.8 million pretax loss and $0.4 million income tax expense in Q1 2018.
- Cash and cash equivalents were $13.2 million at March 31, down from $13.9 million at year-end. Investing activities used $1.2 million, primarily for capital expenditures; financing activities used $4.3 million, including $3.0 million of debt repayments and $1.3 million of dividends.
Balance sheet, debt and liquidity
- Total assets were $636.2 million and stockholders’ equity was $268.0 million at March 31, 2018. Current assets were $66.6 million and current liabilities $28.9 million.
- Debt principal and capital lease obligations totaled $222.6 million, including a $222.0 million term loan; the balance-sheet carrying amount of long-term debt was $212.2 million, net of issuance costs and current installments.
- The company had $20.0 million of available commitments on its revolving credit facility. Term-loan and revolver interest rates were 5.8% at March 31. The term loan matures in November 2023; the revolver matures in November 2022.
- Management reported compliance with all applicable financial covenants. The facility is secured by substantially all company and subsidiary assets, and covenant or payment defaults could accelerate debt maturity. Future revolver availability depends in part on leverage.
- The credit agreement limits dividends and share repurchases, subject to leverage and other conditions. A $0.05-per-share dividend declared in March was paid April 6, 2018.
Material changes and unusual items
- Revenue rose $1.4 million, principally reflecting $4.5 million of additional advertising revenue from the December 2017 Boston asset exchange, partly offset by $1.5 million less revenue after the 2017 sale of the Greenville-New Bern-Jacksonville cluster. Revenue at remaining clusters was described as comparable.
- Station expenses increased $1.6 million, including $3.9 million of expenses associated with the Boston exchange, partly offset by $1.3 million lower expenses following the market-cluster sale.
- Fair-value changes in Greater Media merger-related contingent consideration swung from a $7.5 million gain in Q1 2017 to a $4.4 million expense in Q1 2018. This was a major driver of the reported operating-income and net-income comparison.
- Greater Media settlement shares were returned or forfeited and recorded in treasury stock on March 15, 2018: 867,679 escrow shares and 470,480 shares tied to tower-sale proceeds. The cash flow statement reports $13.5 million of noncash Class A shares returned to treasury.
- The terminated Greater Media pension plan generated a $1.0 million gain in Q1 2018 G&A. The company said this completed recognition of the amount remaining in accumulated other comprehensive income.
- The company adopted new revenue-recognition guidance in Q1 with no reported impact. It expects the forthcoming lease standard to significantly affect the balance sheet, but had not quantified the effect.
Outlook, risks and contingencies
No specific revenue, earnings or cash-flow guidance was provided. Management said it expects liquidity needs to be met over the next 12 months through operating cash flow and available financing, while cautioning that weak results or unexpected expenses could create liquidity pressure or limit further borrowing. Key risks cited include advertising-market weakness, competition and audience trends, technological change, substantial debt and restrictive covenants, FCC licensing and regulation, possible license or goodwill impairment, infrastructure or cybersecurity disruption, and dependence on key personnel. Management reported no litigation expected to have a material adverse effect and no material changes to previously disclosed risk factors.
Investor verification points
- Separate recurring station-level performance from the volatile merger-related contingent-consideration fair-value charge or gain when assessing the year-over-year earnings decline.
- Verify the Boston exchange’s ongoing revenue and cost contribution and the effects of the Greenville-area station disposition.
- Monitor debt, leverage covenant headroom, mandatory excess-cash-flow prepayments, and the conditions governing the stated $20 million revolver availability.
- Assess cash conversion and liquidity against seasonal revenue patterns, capital spending, dividends and debt service.
- Track the accounting and balance-sheet effects of lease-standard adoption and any final Greater Media tax-attribute purchase-accounting adjustments.